Wednesday, June 12, 2002

Madam President, I thank my good friend from Texas. I say to my colleague from Illinois, if the wealthiest people say not to bother repealing the death tax, it is probably because it does not bother them. A lot of the wealthiest people do not really worry about the death tax. If you have enough money, it does not matter what you would pay. Most of them can spend hundreds of thousands and millions of dollars to avoid the death tax. By and large, the people who are paying the death tax are not the very wealthy. They are hard-working people, many of them educators, as my colleague from Arizona has pointed out. But there are an awful lot of farmers and small businesses. I have spent a good deal of my time in my service in the Senate listening to farmers and owners of small businesses. In fact, that is where I get most of my ideas. That is where we got the idea to strengthen the regulatory relief for small businesses and to provide the assistance we give to farmers to open up markets abroad.

We have talked about regulatory relief, and we have provided a number of areas of tax relief, but one of the issues that is the top priority for the farmers and the small businesses in my State is getting rid of the death tax. These are not the wealthiest people. These are people who fear that what they have worked hard to save, to put away, to leave to their children, is going to be taken away by the tax collector.

This morning we had a news conference. We were joined by Brad Eiffert of Columbia, MO. He owns Boone County Lumber Company. He and his brother work in a business that their father started. They have a very successful business with 30 employees. They have worked hard, and they have a great deal of equipment used in their business. They want to continue the business after their father passes on, but they have found that, because of the investment in the equipment, they will have to pay a tremendous estate tax. So now each year they take out of that business almost $60,000 for insurance premiums to pay the tax man. This is money that could be going to the employees, it could be going to buy new equipment, or it could be going to build the business in many ways. They really want to get rid of the death tax.

Farmers I have talked with have told me that they have spent over $100,000 in lawyers fees and accountants fees trying to figure out how to get around the tax. The lawyers get the money, the accountants get the money, and they hope that the Federal Treasury will not get the money. They have to spend a lot of money, that they should be putting back in their farm, to figure out how to avoid this tax.

So what they avoid does not come to the Treasury, but there is a heavy planning cost on how to get away from paying the estate tax that is paid by small businesses and farmers.

Before us we have an amendment which says we are going to expand section 2057 of the Internal Revenue Code, the Qualified Family-Owned Business Interest exclusion, QFOBI, I guess is what it is called. My colleagues propose to make it bigger, better, longer, and stronger, but in 2000 only 1.3 percent of family-owned businesses applied for this 2057 exemption.

There are people saying we are going to allow you to save small businesses and farms from the estate tax through this provision, but the provision does not work. In short, a flat tire cannot be made to roll simply by making it bigger. This 2057 exclusion is too complicated to provide widespread relief to estates harmed by the death tax.

As my colleague from Arizona has pointed out, it is so complex that the American Bar Association urges its tax lawyers not even to try it because it is so filled with traps and so many Catch-22s that they can get sued for malpractice if they try to use it.

In order to qualify, the business must constitute at least 50 percent of the estate's value. The decedent must have owned and been actively involved in the family business for at least 5 of the 8 years leading up to his or her death. Following the death of the owner, the heirs must continue to participate in the business for at least 10 years.

But once the business is transferred, the estate tax deferred by receiving this designation hangs over the business for at least 10 years, and the IRS has a first position lien on the property. So the small business cannot borrow money without going to a loan with a secondary position, if they can even get one. Moreover, such loans cost them more.

If the business goes bankrupt and they cannot continue it, then the IRS goes back and gets the entire estate tax. One hundred percent could become due with interest. Not surprisingly, there are not many people who are willing to play this kind of Russian roulette.

If this amendment were to become law, I can only imagine the insurance premiums that would be required.

We need to kill the estate tax and keep it dead and not let it spring back. That is what farmers and small businesses in my State want.